Arctic Ocean model simulations have revealed that the Arctic Ocean has a basin-wide oscillation with cyclonic and anticyclonic circulation anomalies (Arctic Ocean Oscillation (AOO)) that has a prominent decadal variability <Proshutinsky and Johnson, 1997>. This study explores how the simulated AOO affects the Arctic Ocean stratification and its relationship to the sea ice cover variations. The simulation uses the Princeton Ocean Model coupled to sea ice <H¿kkinen and Mellor, 1992; H¿kkinen, 1999>. The surface forcing is based on National Centers for Environmental Prediction/National Center for Atmospheric Research Reanalysis and its climatology, of which the latter is used to force the model spin-up phase. Our focus is to investigate the competition between ocean dynamics and ice formation/melt on the Arctic basin-wide freshwater balance. We find that changes in the Atlantic water inflow can explain almost all of the simulated freshwater anomalies in the main Arctic basin. The Atlantic water inflow anomalies are an essential part of AOO, which is the wind driven barotropic response to the Arctic Oscillation (AO). The baroclinic response to AO, such as Ekman pumping in the Beaufort Gyre, and ice melt/freeze anomalies in response to AO are less significant considering the whole Arctic freshwater balance.